Modeling Influence of Product Quality and Grower Reputation on Prices in Dutch Flower Auctions

Abstract

The purposes of this study are to examine differences in prices that safari sunset flower growers from Israel receive on the Dutch flower bursa, suggest factors that influence such differences, and examine strength and significance of each factor. We show that price differences between growers can reach 36-47%. In the regression model price differences are regressed on explanatory variables that include proxies for flower quality and grower reputation. The model explains 58-59% of the price variability and enables to compare elasticity of price by the studied factors. Subsequent ordered probit analysis confirmed the relevance of the chosen variables and their ability to explain also the growers clustering by received prices. Analysis of marginal effects shows that changes in the probability of belonging to a specific price group of growers are consistent with the regression model results.

Keywords: flower auction, safari sunset, quality, reputation, econometric model, simulation

JEL Classification: C25, C51, D44, Q13